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PUBLIC DISCLOSURE REQUIREMENTS
FOR TAX-EXEMPT ORGANIZATIONS
By Mark B. Weinberg, Esquire
Aleksander Dardeli, Esquire
and Susan Cupler, Esquire
PUBLIC DISCLOSURE REQUIREMENTS
FOR TAX-EXEMPT ORGANIZATIONS
OTHER THAN PRIVATE FOUNDATIONS
To enhance accountability and maintain its tax privileges, a tax-exempt organization must meet certain transparency requirements. Essentially, it must allow the public to inspect core documents. To successfully discharge this obligation, the tax-exempt needs to identify those documents that must be released for inspection, set aside other documents or sections contained therein that may be excepted or privileged, specify locations where inspection may take place, navigate through time constraints, balance resultant costs with reasonable fees, and avoid penalties for non-compliance. This article is meant to provide a helpful roadmap. It neither covers the subject exhaustively, nor is it legal advice. Interested parties should consult their legal counsel for definitive advice.
Who is affected by what
Effective on June 8, 1999, the regulations regarding the public disclosure requirements for tax-exempt organizations other than private foundations were spelled out in sections 301.6104(d)-0 through 301.6104(d)-3 of the Treasury Regulations (the sections were re-numbered with the regulations on disclosure requirements for private foundations that became effective on March 13, 2000). The following requirements apply to tax-exempt organization that meet the definitions of section 501(c) or section 501(d) and derive their exemption from section 501(a) of the Internal Revenue Code, and to non-exempt charitable trusts that meet the definition of section 4947(a)(1) of the Internal Revenue Code.
What to disclose
The following documents must be made available for inspection to all interested members of the public:
- the application for recognition of exemption (Form 1023 or Form 1024),
- all documents (required or volunteered) that accompany the application,
- any IRS letter regarding the application,
- a copy of Form 990, schedule A to Form 990, and Form 990 EZ for the preceding three years for which they are available,
- any amended return filed after the original return.
What is excluded
There is no obligation to disclose the following:
- any application for tax exemption filed before July 15, 1987 unless the organization had a copy of that application on July 15, 1987,
- any return after the expiration of 3 years from the date that the return should have been filed or has been filed whichever is later (the 3 year period may include any extension that has been granted),
- an application from an organization that has not yet been granted an exemption,
- schedule A of Form 990-BL, Form 990-T (Exempt Organization Business Income Tax Return), Schedule K-1 to Form 1065, Form 1120-POL (U.S. Income Tax Return for Certain Political Organizations).
The IRS recognizes a limited need for withholding certain information. The following information need not be disclosed:
- trade secrets, patents or other information for which withholding was requested and granted,
- national defense material,
- unfavorable rulings or determinations regarding applications for tax exemption,
- rulings or determinations revoking or modifying a favorable determination,
- technical advice memoranda concerning disapproved applications or modified determination letters,
- any document relating to whether a transaction is prohibited under section 503,
- any document relating to a private foundation (an organization described in section 509(a) of the Internal Revenue Code) or a private operating foundation (an organization described in section 4942(j)(3) of the Internal Revenue Code) unless it pertains to the application for tax exemption,
- documents that do not pertain to an application despite their connection with the tax exempt status of an organization described under 501(c) or (d),
- portions of Form 990 that identify names and addresses of contributors to the organization.
Where to disclose
The organization must make the documents available for inspection during regular business hours at its principal office and at its regional and district offices if they employ at least three full-time employees. Offices that offer only services that simply further the organizations exempt purposes, such as day or health care, are excluded. Offices where managers are involved only in the managing of exempt activities are also excluded. Organizations that do not have permanent offices may choose a place to offer the public opportunities for inspection as long as that place is reasonable. They must do so no more than two weeks after receiving a request for inspection. Organizations that have permanent offices but no regular hours follow the rules applicable for organizations with no regular offices. Regional and district offices are not required to furnish annual information returns for inspection until 30 days after the return must be filed. Local and subordinate organizations are required to arrange for inspection of the application submitted by the parent organization, of the group exemption letter or those pages of the exemption letter that specifically refer to them if the parent's exemption letter contains a list or directory of subordinate organizations. While obligated to furnish copies of the group annual information return, local or subordinate organizations may omit schedules relating to other local or subordinate organizations if the group return contains separate schedules.
Time Constraints, Fees and Other Procedural Quirks
While entitled to have an employee present during inspection, the organization must allow note-taking and photocopying (if the interested individual provides the necessary equipment at the inspection site). If a request is made in person, the organization must provide photocopies on the same day, except when the volume of requests exceeds its capacity, the request is made shortly before the end of regular hours, or the staff is conducting special duties rather than regular administrative duties. In those exceptional cases, the organization must fulfill the request on the next business day following the unusual circumstances and no later than five business days from the request date.
If sent to a principal, regional or district office, written requests containing the address of the sender -- whether by mail, electronic mail, facsimile or courier -- must be meticulously honored. The organization must also fulfill requests for partial inspection as long as they are sufficiently specific. The organization must mail out the requested material 30 days from (1) receipt of the written request, (2) the successful transmission of a facsimile or electronic mail request, and (3) the day that the organization receives the payment that it requested in advance (for simplicity the organization is considered in receipt of payment 7 days after the postmark date absent evidence to the contrary). If the organization requires payment but receives a written request without payment, it must notify the sender of its payment policy within 7 days of receiving the written request. The organization may also send the material by electronic mail within 30 days of receipt of original request provided the requester consents to electronic delivery.
As long as a tax exempt organization charges copying fees that do not exceed those of the IRS ($1 for the first page and $.15 for each additional page), its fees will be deemed reasonable. If the requester does not pay the fee within 30 days of notification or the requester's check bounces, the organization may safely disregard the request. For in-person requests, the organization must accept both payment in cash and by money order. For written requests, the organization must accept payment by certified or personal check, money order, or credit card. The organization must obtain the requester's consent for copies and postage that exceed $20.
Technology to the Rescue
A tax-exempt organization may sidestep these cumbersome disclosure requirements by making the requested documents widely available, i.e. posting them on a web page. Wide availability will not obtain until a tax-exempt organization provides on a freely accessible web page clear information that the documents are available for inspection, instructions for downloading them, and formats that allow for exact reproduction of originals when viewed or printed without special hardware or software. The tax-exempt must still respond within 7 days with information as to where the documents are available to any written request or immediately to an in-person request.
Too much inspection, too often
When inspection requests cloak harassment, a tax-exempt organization has two options. The first option is to disregard any requests from one source beyond the first two received within a 30-day period or the first four within any one year period. The second option is to suspend compliance with any request while applying for a determination from the IRS, on a reasonable belief, that it is the target of a harassment campaign. Whether inspection requests amount to harassment depends on the circumstances of each case. Among the factors to be considered are a sudden increase in requests, unusual flows of suspiciously similar requests, hostile requests as well as the tax-exempt's track record of honoring past inspection requests.
For those who don't comply
For each document in a willful failure to comply, the tax-exempt organization must pay $5,000. The IRS may also fine $20 per day for every day of non-compliance up to a maximum of $10,000.
PUBLIC DISCLOSURE REQUIREMENTS
FOR PRIVATE FOUNDATIONS
With the new regulations that became effective on March 13, 2000, the IRS subjected private foundations to practically all the public inspection requirements applicable to other tax-exempt organizations. In pertinent IRS "speak," a private foundation is an organization that meets the definition of section 509(a), or an organization subject to the reporting requirements of section 6033 of the Internal Revenue Code (pursuant specifically to section 6033(d)), i.e. a non-exempt private foundation.
All the above guidelines concerning non-exempt charitable trusts and tax exempt organizations other than private foundations are also valid for private foundations with the following distinctions:
- information regarding the identity of the contributors to the organization is neither privileged nor excepted; it must be made available for public inspection,
- annual information returns include Form 990-PF and Form 4720,
- private foundation returns which were due before March 13, 2000, are excepted; to determine the due date for purposes of this distinction, interested parties may include extensions in their calculations.
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